Op-Ed Contributors

Reinhart and Rogoff: Responding to Our Critics

Published: April 25, 2013

(Page 3 of 3)

The graduate students now poring over debt data should consider using the five-year filter used in our 2012 paper. This does not turn out to exclude all that many debt overhang experiences, but it does filter out a few associated with short recessions and postwar remobilizations. The big question today is not how economies do with high debt after a war, but how to handle high debts in peacetime. After a war, when physical capital is destroyed, but human capital remains, it is often possible to rebuild faster. There are also many efficiency benefits from releasing wartime controls and bringing manpower to productive use. But the first few years of such experiences, in any event, might not necessarily capture the problem that one is interested in, of today’s peacetime deficits. Again, in our 2012 paper, we explore many reasons debt overhang might matter for growth, at least in theory. But much more needs to be understood.

By CARMEN M. REINHART and KENNETH S. ROGOFF

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We again turn readers to our Op-Ed essay to understand ideas for bringing debt down. To reiterate, there are four solutions: slow growth and austerity for a very long time, elevated inflation, financial repression and debt restructuring. We have long emphasized the need to use the whole tool kit creatively in the aftermath of a once-in-75-year financial crisis. One of us has widely discussed using financial repression as a means of dealing high debt. Even at the outset of the crisis, one of us advocated mildly high inflation. A Project Syndicate column in December 2008 advocated moderately elevated inflation as means of getting the economy moving again, in part by taking some edge off public and private debts. Bill Clinton’s 2011 book “Right to Work” cites our proposals to write down subprime mortgage debt on a large scale.

Early on in the financial crisis, in a February 2009 Op-Ed, we concluded that “authorities should be prepared to allow financial institutions to be restructured through accelerated bankruptcy, if necessary placing them under temporary receivership.”

Significant debt restructurings and write-downs have always been at the core of our proposal for the periphery European Union countries, where it seems to us unlikely that a mix of structural reform and austerity will work.

Finally, we view ourselves as scholars, though obviously given the prominence of book, and the extraordinary circumstances of the financial crisis, politicians will of course try to use our results to advance their cause. We have never advised Mr. Ryan, nor have we worked for President Obama, whose Council of Economic Advisers drew heavily on our work in a chapter of the 2012 Economic Report of the President, recreating and extending the results.

In the campaign, we received great heat from the right for allowing our work to be used by others as a rationalization for the country’s slow recovery from the financial crisis. Now we are being attacked by the left — primarily by those who have a view that the risks of higher public debt should not be part of the policy conversation. Above all, we resent the attempt to impugn our academic integrity. Doing archival research involves making constant judgments and yes, on occasion, mistakes. Learning from them is how science advances. We hope that we and others can learn from ours.